Founders First Capital Partners has raised $18.59 million for its Change Catalyst Fund II as the firm reports growing demand from established small businesses seeking to refinance high-cost merchant cash advances.
The San Diego-based alternative credit firm, founded by Kim Folsom, announced the milestone on October 6, 2026.
Its loan deployment increased 46% year over year, while merchant cash advance (MCA) refinancing now accounts for more than 61% of its loan fundings.
Short-term, sales-based financing can provide businesses with quick access to capital, but its repayment structure can also place pressure on the cash needed for payroll, operations, and expansion.
Why Merchant Cash Advances Can Strain Small Business Cash Flow
A merchant cash advance provides upfront funding in exchange for a portion of a business’s future sales or receivables. Companies often use MCAs to cover immediate expenses or manage temporary cash shortages because funding can be faster to obtain than a conventional bank loan.
Many agreements require daily or weekly withdrawals from business revenue, reducing available working capital, particularly for companies with seasonal sales or delayed customer payments.
MCAs commonly use factor rates rather than traditional annual percentage rates. For example, a business receiving a $100,000 advance with a factor rate of 1.4 would repay $140,000.
The $40,000 financing cost generally remains fixed regardless of how quickly the advance is repaid, unless the agreement provides otherwise. The equivalent annualized cost depends on the repayment schedule and other terms.
According to Founders First, some merchant cash advances carry effective annualized rates exceeding 50%. Businesses that repeatedly obtain new advances to cover existing obligations can face additional financial pressure as repayment commitments accumulate.
SBA Rules Limit Refinancing Options
The U.S. Small Business Administration restricted the use of SBA 7(a) loans to refinance merchant cash advances in 2025.
Updated SBA lending procedures effective October 1, 2026 provide a limited pathway for MCA debt that has already been converted into a qualifying term loan.
Active merchant cash advances remain ineligible for direct SBA 7(a) refinancing, leaving businesses to explore conventional lenders, community development financial institutions, and private-credit providers such as Founders First.
MCA Refinancing Accounts for More Than 61% of Founders First’s Loan Fundings
Merchant cash advance refinancing has become a substantial part of Founders First’s lending activity.
In its 2024 Annual Report, the firm reported that 23% of its lending portfolio had refinanced MCAs. Its October 2026 announcement puts MCA refinancing at more than 61% of loan fundings, although the two figures measure different portfolio characteristics.
According to Founders First, it has refinanced MCA obligations for 33 borrowers, with an average refinancing amount of approximately $175,000. The firm reports an average reduction of 15 percentage points in borrowers’ effective annual percentage rates.
Founders First provides revenue-based financing, hybrid loans, and term loans to established service businesses, primarily those generating between $500,000 and $10 million in annual revenue. Its financing is structured to help businesses refinance debt and pursue growth without giving up equity.
Borrowers considering refinancing must still evaluate total borrowing costs, repayment schedules, fees, and other loan terms to determine whether a replacement loan improves their financial position.
How Refinancing Improved One Company’s Monthly Cash Flow by $35,000
Alpha Business Solutions, a New Jersey-based IT staffing and payroll services company, is among the businesses that have refinanced MCA obligations through Founders First.
According to the lender, Alpha replaced its MCA obligations with a term loan, reducing its effective interest rate by 42% and improving monthly cash flow by approximately $35,000.
The company’s CEO, Gene Waddy, described the importance of obtaining financing that could support its operating needs and growth plans. Alpha subsequently returned to Founders First for additional expansion financing.
For staffing companies, cash flow management is particularly important because payroll obligations often come due before customers settle outstanding invoices. Lower debt-service payments can free up working capital for hiring, payroll, and new contracts.
The reported results illustrate the potential benefits of refinancing, although individual outcomes depend on the original financing agreement, replacement loan terms, and business performance.
Institutional Investors Support Founders First’s $50 Million Fund
Change Catalyst Fund II has a $50 million fundraising target. Founders First announced an oversubscribed $12 million first close in April 2026, with subsequent commitments bringing cumulative capital closed to $18.59 million.
New investors and supporters include Community Reinvestment Fund, USA, six family foundations, and Wells Fargo Foundation through Founders First’s fiscal sponsor, Realize Impact.
Existing investors and supporters include Surdna Foundation, Deutsche Bank Americas Foundation, Sunrise Banks, Marguerite Casey Foundation, and Reynders McVeigh Capital Management.
The fund primarily targets established business-to-business and business-to-government service providers seeking capital to expand their operations.
According to its 2025 Impact Report, Founders First has deployed more than $23 million in capital, supported an estimated $44.5 million in projected wealth creation, and provided training to more than 5,000 member companies.
With MCA refinancing accounting for a substantial share of its lending activity, Founders First’s growth reflects demand among its borrowers for financing that can lower debt-service costs, improve cash flow, and support business expansion without requiring owners to give up equity.
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